In Fragale v. Wells Fargo Bank, N.A., a case involving fraudulent wiring instructions in connection with a real estate transaction, the United States District Court for the Eastern Division of Pennsylvania dismissed the buyer’s claims against the bank that received the wire transaction (“Bank”), determining that the Bank did not owe a duty to the sender/buyer to properly verify the identity of the person who opened the recipient bank account, nor a duty to take “preventable steps” before permitting the withdrawal of a large amount of funds from the newly opened bank account. Although the Court determined that the claims were not preempted under Article 4A of the Pennsylvania Uniform Commercial Code (“UCC”), the Court determined that, generally, banks do not any duty of care to noncustomers and/or third parties.
A copy of the opinion is available here.
Background
In connection with purchase of a retirement home, Buyer received wiring instructions purporting to be from his settlement company. The wiring instructions were fraudulent, nevertheless, Buyer wired the purchase money to the designated bank account. The recipient bank received the funds, deposited the funds into the specified account, and such funds were immediately withdrawn through two large cashier’s checks. Buyer was later informed that the account itself was fraudulently opened as well, and that Bank was unable to recover the funds.
Buyer then sued Bank, claiming that it was negligent because the Bank did not properly verify the identity of the account owner, and further, because it failed to undertake reasonable preventative measures prior to permitting the withdrawal a large amount of funds.
Discussion
The Court rejected Bank’s claims that Article 4A of the Pennsylvania UCC preempted the negligence claims. The Court recognized that Article 4A generally applied to wire transfers, and that the Official Comment to Article 4A indicated that Article 41 provides “‘the exclusive means of determining the rights, duties and liabilities of the affected parties in any situation covered by particular provisions of the Article. Consequently, resort to principles of law or equity outside of Article 4A is not appropriate to create rights, duties and liabilities inconsistent with those stated in this Article.’” Op. at 4 (quoting Pa. UCC §4A-102, cmt.)
However, the Court narrowly construed the scope of preemption under Article 4A, in part based upon the definition of “funds transfer,” which was defined as “the series of transactions, beginning with the originator's payment order, made for the purpose of making payment to the beneficiary of the order. . . A funds transfer is completed by acceptance by the beneficiary's bank of a payment order for the benefit of the beneficiary of the originator's payment order.” Op. at 4 (Emphasis in original, citing Pa. UCC §4A-104(a)). Consequently, the Court concluded that because the opening of the account was before the wire transfer instruction and the contested withdrawal happened after the Bank accepted and processed that funds, thus any claim premised on the opening of the account and the withdrawal of funds fall outside the scope of Article 4A.
Nevertheless, the Court determined that the Buyer’s negligence claim against the Bank failed as a matter of law. Buyer asserted that under Section 302(b) of Restatement of Torts, which has been applied in Pennsylvania, “[a] negligent act may be one which . . . creates a situation which involves an unreasonable risk to another because of the expectable action of the other, a third person, an animal or a force of nature.” Op. at 10 (citing Anderson v. Bushong Pontiac Co., 171 A.2d 771 (1961). However, the Court observed that that for a plaintiff to successfully rely on § 302(b), the act of the third party must be foreseeable.” Op. at 11.
Here, the Court determines that Buyer failed to allege any facts to suggest that when Bank actually opened the account, it should have been on notice that this particular account was being opened for criminal or fraudulent purposes. Op. 12. “At most, [Buyer] has alleged that banks . . . were generally on notice that such schemes exist.” Id.
As to the withdrawal of funds, although Buyer alleged that Bank “should have suspected fraudulent activity simply because the funds were ‘immediately withdrawn’ from a recently opened account,” the Court determined that such facts were insufficient to put Bank on notice that it was “likely” that the withdrawals were part of a fraudulent scheme. Op. at 12.
Consequently, the Court determined that the Buyer’s complaint was devoid of factual allegations necessary to place Bank on notice that third-party criminal conduct was likely to result, and that therefore, failed to establish that Bank owed a duty of care to Buyer. The Court likewise projected that the Supreme Court of Pennsylvania would not impose a duty under these particular facts, because, among other things, the lack of relationship between the noncustomer Buyer and the Bank, national precedent refusing to impose a duty on banks to noncustomers, and noting that the Buyer was at least equally situated, if not in a better position, to prevent the harm he allegedly suffered by verifying the legitimacy of the wiring instructions with the settlement company. Op. at 19.
Accordingly, the Court dismissed Buyer’s claims.